Reinsurance News

Swiss Re’s net income up but P&C combined ratio weakens on losses

20th February 2020 - Author: Luke Gallin

Global reinsurer Swiss Re has reported a 73% rise in net income for 2019 as its Life & Health Reinsurance (L&H Re) result and investment performance offset management actions within its commercial insurance arm, and a Property & Casualty Reinsurance (P&C Re) underwriting loss.

Swiss ReFor the full year 2019, Swiss Re’s net income increased by a huge 73% to $727 million, compared with the $421 million recorded a year earlier.

Within P&C Re, Swiss Re has announced net income of $396 million for the year, which is growth on the $370 million recorded a year earlier, however, the unit’s combined ratio weakened and remained in unprofitable territory at 107.8%.

The reinsurance giant notes the considerable impact from natural catastrophe and man-made loss events in the year, which combined totalled $2.3 billion. Swiss Re attributes much of the large natural catastrophe losses to Typhoon Hagibis and Faxai in Japan, Hurricane Dorian in the Atlantic, as well as devastating wildfires, floods, hailstorms and flooding in Australia. At the same time, the reinsurer notes that its 2019 P&C Re result was hit by further loss creep from Typhoon Jebi.

Man-made losses experienced in the year included the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX Fleet.

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Within P&C Re, Swiss Re has reported that net premiums earned increased to $19.3 billion, while the return on equity increased from 3.7% to 4.4% in 2019.

Swiss Re’s Chief Executive Officer (CEO), Christian Mumenthaler, commented: “Our 2019 results were impacted by heavy natural catastrophe losses, our decisive management actions to reposition Corporate Solutions and increased claims in US casualty. We are taking proactive measures to put us at the forefront of adverse trends.

“On the other hand, we delivered an excellent investment result and strong performance in L&H Re, demonstrating the power of our diversified business model. We achieved a key strategic milestone with the agreement to sell ReAssure. And we are starting 2020 with an improved quality of our portfolio, underpinned by strong January renewals and pricing momentum.”

Swiss Re has also provided an update on its experience at the January renewals, revealing that it renewed contracts with $10 billion in premium volume at 1/1. This represents 2% growth in P&C Re premium volume, driven mostly by an increase in property business, particularly in its natural catastrophe book, which offset a decline in casualty lines.

During the Jan 1st 2020 renewals, P&C Re achieved a nominal price increase of 5%, and notes that risk-adjusted price quality was unchanged which reflects lower interest rates and more conservative loss assumptions.

As noted by Mumenthaler, Swiss Re took some further decisive management actions within its Corporate Solutions unit during the year, which saw the unit fall to a net loss of $647 million. The reinsurer notes that this was also impacted by an elevated level of claims within its U.S. casualty operation. Net premiums earned in Swiss Re Corporate Solutions increased by more than 6% to $4.2 billion, and the business has reported a combined ratio of 127.9% for the year, against 117.5% a year earlier.

Offsetting the challenges within Corporate Solutions and the P&C Re underwriting loss in 2019, L&H Re saw its net income rise to $899 million in 2019. Net premiums earned and fee income also increased in the year to $13 billion. The firm’s L&H Re business reported an improved return on equity of 12.4% for 2019, which is above the target range of 10% to 12%.

Swiss Re’s investment return also improved in the year, further offsetting pressures in other parts of the business. The reinsurer has reported a return on investment of 4.7% for 2019, which is up on the 2.8% recorded in 2018.

Swiss Re’s Group Chief Financial Officer (CFO), John Dacey, commented: “Despite significant loss events in 2019, Swiss Re maintains its very strong capital position and continued reserve adequacy. P&C Re matched strong growth with rigorous expense discipline, Corporate Solutions also improved its expense ratio, and L&H Re continues to deliver robust performance. The strength of our business model allows us to continue to offer an attractive dividend bolstered by a public share buyback programme.”

Overall, and as well as higher net income, the reinsurance giant has reported that net premiums earned and fee income increased to $39 billion in 2019, compared with $34.5 billion in 2018.

Looking forward, Mumenthaler added: “Moving into 2020, we remain firmly committed to building resilience for our clients, communities and governments as they face significant and wide-ranging challenges. We will focus on completing the sale of ReAssure and improving the performance of Corporate Solutions through active portfolio pruning and rate increases.

“We remain confident in our ability to proactively address new industry developments and capture business opportunities while maintaining attractive shareholder returns.”

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